THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY

Required Report - public distribution

Date: 5/1/2013 GAIN Report Number: HK1318

Hong Kong

Retail Foods

2013

Approved By: Erich Kuss Prepared By: Chris Li

Report Highlights: Total retail sales of food and drinks in for 2012 reached US$10.2 billion, representing a sound growth of 7 percent compared to 2011. Hong Kong imports of high value food products from the U.S. reached US$3.45 billion in 2012, consolidating our position as the leading food supplier to Hong Kong. It is expected that Hong Kong will maintain its position as one of the top 5 markets for U.S. consumer ready food products in 2013, as it continues to be a major buying center and transshipment point for other markets in the region. Economic growth in Hong Kong is forecast to be 3% in 2013. Post expects that U.S. products will continue to fair well due to competitive prices and consumer confidence in the quality and safety of U.S. products.

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SECTION I. MARKET OVERVIEW

Food Imports

 Due to limited land resources and having a population of 7.2 million, Hong Kong relies on imports for over 95% of it food supply. According to the latest statistics (for 2011) of the Agricultural Fisheries and Conservation Department, the local agricultural industry produced US$95 million worth of products. It is comprised of US$31 million in crop production (mainly vegetables), US$36 million in livestock production, and US$28 million in poultry production. Local production accounted for 2.3 percent of fresh vegetables, 57 percent of live poultry and 7 percent of live pigs consumed in the territory.

 Due to its central location, free port status and position as a regional purchasing and distribution center, a significant amount of Hong Kong imports are re-exported.

Table 1 – Hong Kong Imports (2008-2012) of Consumer Oriented Agricultural Products (COAP) & Seafood

Growth Share in % of Re-exports Country (in US$ Million) 2008 2009 2010 2011 2012 12 v 11 2012 of Gross Imports

World Gross Imports 11,080 12,232 14,641 17,664 18,166 3% 100% Re-exports 3,388 3,810 4,404 5,140 5,185 1% 100% 29%

Retained Imports 7,691 8,423 10,237 12,524 12,981 4% 100%

United Gross Imports 1,624 1,983 2,779 3,370 3,450 2% 19% States Re-exports 608 752 1,155 1,619 1,476 -9% 28% 43% Retained Imports 1,015 1,231 1,624 1,751 1,974 13% 15% Gross Imports 1,862 1,955 2,205 2,652 3,044 15% 17% Re-exports 344 324 380 494 747 51% 14% 25% Retained Imports 1,518 1,631 1,825 2,158 2,298 6% 18% Brazil Gross Imports 1,442 1,576 1,420 1,650 1,645 0% 9% Re-exports 630 738 658 551 540 -2% 10% 33% Retained Imports 812 838 763 1,099 1,105 0% 9% Netherlands Gross Imports 307 323 387 666 860 29% 5% Re-exports 100 95 91 111 100 -10% 2% 12% Retained Imports 207 228 295 555 761 37% 6% France Gross Imports 374 437 678 986 815 -17% 4% Re-exports 110 114 160 215 190 -12% 4% 23% Retained Imports 264 323 517 771 625 -19% 5% Gross Imports 610 686 666 771 812 5% 4% Re-exports 60 92 84 80 99 24% 2% 12% Retained Imports 550 593 582 691 712 3% 5% Gross Imports 471 575 511 568 612 8% 3% Re-exports 265 349 286 312 358 15% 7% 59% Retained Imports 206 226 224 256 254 -1% 2% Gross Imports 601 709 973 958 870 -9% 5% Re-exports 41 44 51 51 45 -12% 1% 5% Retained Imports 560 665 923 908 826 -9% 6% Germany Gross Imports 301 286 307 435 392 -10% 2% Re-exports 180 168 166 146 131 -10% 3% 33% Retained Imports 121 118 141 289 261 -10% 2% Chile Gross Imports 191 242 260 373 425 14% 2% Re-exports 80 154 181 279 314 13% 6% 74% Retained Imports 110 88 79 94 110 17% 1%

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Gross Imports 7,783 8,773 10,186 12,429 12,925 4% 71% Total of Top 10 Re-exports 2,418 2,830 3,213 3,857 4,000 4% 77% 31% Suppliers Retained Imports 5,364 5,943 6,974 8,573 8,925 4% 69% Gross Imports 3,297 3,460 4,454 5,234 5,241 0% 29% Total of Rest of Re-exports 970 980 1,191 1,283 1,186 -8% 23% 23% World Retained Imports 2,327 2,480 3,263 3,951 4,056 3% 31% (Source: Calculations based on Global Trade Atlas data) (Retained Imports = Gross Imports into Hong Kong – Re-exports out of Hong Kong)

 Hong Kong is a mature and sophisticated market with a growing demand for foods. At the same time, most Hong Kong shoppers are price conscious consumers looking for “value for money” products. The continuous influx of tourists and capital contributed to the economic growth in Hong Kong. As a result, the demand for food imports continued to grow in 2012. Major import items included red meats, fruits, poultry meat, seafood and tree nuts.

 Thanks to the growing economy and consumer affluence, total retained imports of consumer-oriented agricultural products (COAP) and Seafood products in Hong Kong managed to grow by 4% in 2012.

 The U.S. consolidated its position as the largest supplier of COAP and Seafood products to Hong Kong in 2012. Retained imports of these products from China and the U.S. in 2012 reached US$2.3 billion and US$2 billion, representing market shares of 18% and 15% respectively.

 Hong Kong’s status as a gateway for trade with other markets in the region is increasingly opening up greater avenues for U.S. high value food products. In 2012, Hong Kong imported over US$18 billion COAP and Seafood from the world and re-exported 29% of these products.

Economy

 With the continued influx of investment, particularly from Mainland China, Hong Kong’s economy continued to grow in 2012. GDP and per capita GDP grew by 5.4% and 4.2%, and reached US$261 billion and US$36,557 respectively in 2012.

Table 2 – Hong Kong: Gross Domestic Product and GDP per capita

Growth 2011 2012 12 vs 11 GDP US$248 billion US$261 billion +5.4% GDP per capita US$35,100 US$36,557 +4.2% (Source: Hong Kong Census & Statistics Department, US$1=HK$7.8)

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Outlook of the Retail Food Sector in 2013

 The outlook for food imports and spending on food is less optimistic as the Hong Kong economy is expected to grow at a slower pace at 3 percent in 2013. However, U.S. agricultural products are well known in the market for their good and quality. In addition, the peg between U.S. dollar and HK dollar will provide much needed foreign exchange stability which will make buying U.S. products more advantageous.

Table 3 – Hong Kong: Summary of the Key Strengths and Challenges for the Market

Strengths Weaknesses Hong Kong is one of the top markets in the U.S. food products are not always price world for food and beverages, processed, fresh competitive. China is the largest competitor of and frozen gourmet products. U.S. exports of U.S. food products. high value food and beverage (HVFB) products to Hong Kong were close to US$2.9 billion, consolidating its position as the 4th largest market for the United States in 2012. Hong Kong is a major trading hub where buyers Lengthy transportation time and availability of make purchasing decisions for hundreds of product due to seasonality (e.g. fresh produce) millions of dollars of consumer oriented products associated to importing U.S. food and beverage that are transshipped to China and other parts products to Hong Kong can make them less of Asia. competitive than products available in the region or from China, Australia, and New Zealand (favorable in terms of location). U.S. food products enjoy an excellent reputation The importance of Hong Kong as a among Hong Kong consumers, as they are transshipment point and buying center for renowned for high quality and food safety China and elsewhere is not widely known to standards. U.S. exporters. The U.S. is the 2nd largest supplier of Hong Kong labeling and residue standards differ agricultural, fisheries, and forestry products to in some cases, which can impede trade. Hong Kong. For HVFB products, the United States maintained its position as the largest supplier to Hong Kong in 2012. Technical barriers to imports of U.S. products Numerous Hong Kong food regulations are not are generally very low. in line with Codex, which can complicate import clearances. There is a wide variety of U.S. products While Hong Kong has one of the busiest available to Hong Kong consumers (over 30,000 container terminals in the world, it also has the different items). most expensive port handling charges. The link between the Hong Kong Dollar (HKD) to Hong Kong’s top are a duopoly the U.S. Dollar help insulate the HKD from that often request slotting fees. currency fluctuations.

In general, implementation and application of Inflation is on the rise in Hong Kong. The regulations is transparent and open. increase in food prices may cause some

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consumers to turn to more lower-price lower- quality food products where U.S. products do not enjoy strong competitive advantage. Hong Kong exporters choose to work with Hong Kong importers and distributers to get their products to Mainland China because of Hong Kong’s dependable legal system, financial system and rule of law. Most transshipments to Macau are purchased, consolidated, and shipped via Hong Kong. Demand is increasing most rapidly for “healthy” and gourmet foods, market segments where the United States is especially strong. Hong Kong concerns over food safety have made U.S. food products as a top choice for quality and safety. Hong Kong’s modern and efficient port terminal and free port status make it an attractive destination and for re-exports. Hong Kong is a “quality” and trend driven market so price is not always the most important factor for food and beverage purchases. Hong Kong is a dynamic market with a sophisticated international community where new high quality products are readily accepted. Hong Kong is entirely dependent on imports for meeting its food needs. With continued economic growth, U.S. HVFB exports to Hong Kong grew by nearly 13% in 2012 compared to 2011 and consolidated its position as our 4th largest market for HVFB products in the world. Lack of local production means virtually no protectionist pressures for food and agricultural products. Hong Kong is in an economically vibrant region and its economy is expected to grow by 3% in 2013.

Hong Kong’s duopolistic supermarkets have a wide distribution network. Cold chain and distribution channels for food products are generally efficient and dependable, as is the customs clearance process.

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Retail Sales and Outlets

 Total retail sales of food and drinks in Hong Kong for 2012 reached US$10.2 billion, representing growth of 7 percent compared to 2011. Relatively steady economic growth prospects should help maintain growth in the food retail sector and food retail sales in 2013.

Table 4 – F&B Retail Sales in Hong Kong (US$ billion)

Channel 2008 2009 2010 2011 2012 Growth (12 vs 11) Supermarket/Dept. Stores 4.32 4.44 4.59 5.22 5.77 10.5% Other outlets 3.77 3.69 4.02 4.31 4.43 2.8% Total 8.09 8.13 8.61 9.53 10.2 7% (Source: Hong Kong Census and Statistics Department, US$1=HK$7.8)

Chart 1 – F&B Retail Sales in Hong Kong (US$ billion)

 Despite a highly centralized supermarket retail network, with two supermarket chains accounting for about 80 percent of the supermarket turnover, the total number of retail establishments stands at approximately 14,400. Retail shops in Hong Kong generally are very small in size, about 96 percent of which hire less than 10 employees.

 Traditionally, Hong Kong consumers shop for food daily because of a preference for fresh food. Much of the shopping is still done in traditional markets including wet markets and mom-and-pop shops. While both wet market and supermarket sales are increasing, supermarkets are taking a greater share of total sales. The supermarket’s share in terms of retail sales rose from 44 percent of total sales in 1995 to 57 percent in 2012.

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Table 5 – Sales by Retail Outlet

Outlet 2008 2009 2010 2011 2012 Supermarkets/ Dept. stores 54% 53% 53% 55% 57% Other outlets 46% 47% 47% 45% 43% Total 100% 100% 100% 100% 100% (Source: Hong Kong Census and Statistics Department)

 Although there will not be significant growth of the number of supermarkets, the retail sales share of supermarkets is expected to continue to expand in the future at the expense of that of traditional markets. Many supermarkets in Hong Kong now have successfully tapped the fresh food market by offering foods at very competitive prices and providing a comfortable shopping environment, which is different from traditional wet markets.

 Overall, wet markets are strong in fresh foods, while supermarkets are strong in processed, chilled and frozen, high added value, and canned food products. The competition between wet markets and supermarkets has intensified in recent years. Some wet markets have turned air-conditioned and provide free shuttle to nearby residential areas.

Import Regulations

Duties

With the exception of spirits, all food and beverage products can be imported to Hong Kong duty free.

Certificates & Permits

In Hong Kong, the legal framework for food safety control is defined in part V of the Public Health and Municipal Services Ordinance and the Food Safety Ordinance. The basic tenet is that no food intended for sale should be unfit for human consumption. Technical requirements for imports vary significantly according to the product. Products which require import permits/health certificates include meat, milk and frozen confections. The Hong Kong Government (HKG) also plans to implement a health certification requirement for eggs and seafood products. The HKG accepts import applications from Hong Kong importers. In other words, local importers and not U.S. exporters are required to apply for import permits. U.S. exporters need to supply their agents/importers with necessary documentation such as health certificates from the U.S. government.

Labeling

All prepackaged food products in Hong Kong have to comply with Hong Kong’s labeling regulation. There are also labeling requirements for allergens and nutrients. U.S. labels may not be able to meet with Hong Kong labeling requirements particularly for products with nutritional claims. However, the Hong Kong government allows stick-on food labels, which could be arranged by Hong Kong importers with the permission of the manufacturers. Page 7 of 24

The marking or labeling of prepackaged food can be in either the English or the Chinese language or in both languages. If both languages are used in the marking and labeling of prepackaged food, the name of the food, ingredient lists and nutrition information have to be provided in both languages.

Labeling for Biotech Food

The HKG does not have any specific biotechnology regulations with regard to the labeling of biotech food products. It makes no distinction between conventional and biotech foods. All are subject to the same food safety regulation. The HKG continues to promote voluntary labeling of GMO products as a viable alternative for the trade. The guidelines on labeling for biotech foods, released in 2006, are advisory in nature and do not have any legal effect. The threshold level applied in the guidelines for labeling purpose is 5 percent, in respect of individual food ingredient. Negative labeling is not recommended.

Organic Certification

While the Hong Kong Organic Center provides organic certification for local produce, Hong Kong does not have a law regulating organic food products. U.S. organic products can be sold in Hong Kong with the USDA organic logo.

Others

Under the food ordinances, there are regulations governing the use of sweeteners, preservatives, coloring matters, and metallic contaminants. The Hong Kong government enforces its food safety control according to Hong Kong’s food regulations. In the absence of a particular provision in Hong Kong food regulations, the HKG would draw reference from Codex and/or conduct risk assessments to determine whether a food meets the food safety standard.

In 2012, Hong Kong enacted its first-ever pesticide residue regulation, which will be implemented in August 2014. Its framework is largely built on Codex’s standard, supplemented by standards adopted in China, Thailand the U.S.

For details on Hong Kong’s general import regulations for food products, please refer to GAIN Report #1233.

SECTION II. Road Map for Market Entry

A. Market Structure

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 U.S. exporters intending to sell to supermarkets can go through either one of the above channels. While certain supermarkets have tried to order an assortment of imports through consolidators, the bulk of supplies come from local agents or importers.

 Convenience stores and traditional retail outlets buy goods from local importers and agents. Due to relatively little turnover, they are not interested in buying direct from exporters or through consolidators. Therefore, U.S. food exporters have to go through Hong Kong importers to have their products sold in convenience stores or traditional markets.

Supermarkets

Table 6 – Profiles of Leading Supermarket Chains in Hong Kong

Type of Name of Retailer Ownership No. of Outlets Purchasing agent Importers/Agents Hong Kong Over 260 Exporters Consolidators Importers/Agents Exporters ParknShop Hong Kong Over 260 Consolidators

CRVanguard Importers/Agents China 86 shops & 11 superstores Shops Exporters

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Over 80 DCH Food Mart & DCH Food Mart Importers/Agents DCH Food Mart Hong Kong Deluxe Exporters Jusco Stores (HK) 9 supermarkets within department stores Japan Importers/Agents Ltd. and 6 separate supermarkets 4 Importers/Agents Hong Kong Consolidators

Oliver’s The Importers/Agents Hong Kong 1 Delicatessen Consolidators Japan 1 Importers/Agents Sogo Japan 2 Importers/Agents

 There are two dominant supermarket chains in Hong Kong: The Wellcome Co. Ltd. (over 260 outlets) and ParknShop (over 260 outlets). ParknShop and Wellcome account for about 80% of all supermarket turnovers in Hong Kong. Both supermarkets are able to work closely with real estate developers to open stores in strategic locations, thus maintaining their significant market share. The other players include: Vanguard Shops (CRVanguard), Dah Chong Hong (DCH) Food Marts, Jusco and CitySuper.

 CRVanguard focuses on local customers. While carrying a variety of products from different countries, a major portion of them comes from China.

 Dah Chong Hong’s outlets (DCH Food Marts) are generally located near wet markets. While being an importer of a variety of products, its retail outlets focus on frozen meat and seafood products. Dah Chong Hong is also a major food importer.

 CitySuper and Oliver’s The Delicatessen capture an upscale market. Clientele includes mainly well-off middle class and expatriates. Customers are generally receptive to western foods. Both high-end supermarkets require no listing fees.

 Gateway Superstore and PrizeMart are two supermarkets in Hong Kong selling primarily U.S. products. PrizeMart has 21 stores and Gateway has 1 store. Both supermarkets import directly from U.S. consolidators and do not charge listing fees.

 Jusco, Sogo and Uny are Japanese department stores with supermarket sections. These supermarkets attract many middle-class customers, who are receptive to new products and do not mind to pay for higher prices for higher quality products. These three stores are popular spots for in-store promotions as they are packed with consumers seven days a week.

 Hong Kong supermarkets require listing fees which are fees charged to allow a new product to be put on their shelves. This is a one-off fee for a trial period. The listing fees are extremely negotiable and vary greatly among different supermarket chains. Major supermarket chains, such as Wellcome and ParknShop which have many branch stores, have expensive listing fees. Industry sources revealed that key supermarket chains may charge HK$1,000 (US$130) per SKU for each of its store. A 30% discount may be offered to certain suppliers. The discount offered varies tremendously depending on the popularity of the products and the bargaining power of the supplying companies. Agents/importers will

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not bear this cost as it is normally just transferred to their principals.

 U.S. exporters should be prepared to encounter numerous trading term demands from Hong Kong food retailers, such as promotional discounts (number of discount promotions offered each year); back-end income (flat rebate per year that a U.S. exporter has to pay to the retail chain based on the annual turnover); D.G.A. (Distribution allowance - the fee that the supermarkets charge for distributing the products from its warehouse to its many branch stores); and incentive rebate (a percentage of turnover rebated to the supermarkets in case sales exceed the agreed amount). It can be expected that the bigger the supermarket, the harsher the trading terms. For general reference, about 15% of the annual turnover has to be rebated to the major supermarkets and 8% to small ones. Agents representing very popular items with large turnover usually have a stronger bargaining power and will be able to negotiate for a lower rebate rate.

 In face of strong competition, major supermarket stores often offer discounts and tend to transfer the cost to suppliers by requesting lower prices for supplies. Given supermarkets’ strong bargaining power, many suppliers have to give supermarkets special discounts which ordinary retailers do not enjoy.

 There is growth potential in Hong Kong’s retail food market for U.S. grocery store items, particularly new and different items, as food retail outlets continue to increase and diversify. Because of established ties and traditional relationships, most of Hong Kong’s supermarket chains traditionally looked to Britain, Australia, New Zealand, and Canada for supplies. In recent years, however, buying habits are shifting and many more American items are now available on local grocery store shelves. Supermarkets tend to use consolidators to help them source new products which are popular in the United States.

Market Entry Approach

 Through setting up a representative office in Hong Kong: While this is the most direct and effective approach, it is very costly.

 Through U.S. Consolidators: Major supermarkets in Hong Kong work with U.S. consolidators for some of their products. However, the product quantities requested per shipment are usually small, especially when new products are purchased to test the market.

 Using Hong Kong Agents: This is the most popular approach. The advantage of having an agent is that it can help with marketing and distribution. Some companies may secure a very competitive price package with TV/magazine/radio for advertisements. In addition, well-established companies have extensive distribution networks not limited to one or two supermarkets.

 Direct to Supermarkets: For branded products to sell direct to supermarkets, supermarkets usually require exclusive rights in selling the products in Hong Kong through their own outlets only. Otherwise, they will not consider any direct imports. In this case, expensive listing fees may be waived. For non-branded and large turnover products such as fruit, meat, and vegetables, supermarkets tend to buy direct from overseas exporters to cut costs.

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 Direct selling to supermarkets is difficult to handle because they demand strict on-time delivery and very often will not be able to take a whole container. Logistics is the largest problem that U.S. exporters have to deal with if they want to sell direct to supermarkets. However, they can better test the market if they deal directly with retailers.

Convenience Stores

Table 7 – Profiles of Leading Convenience Stores in Hong Kong

Retailer No. of Purchasing Year Clients’ Ownership Locations Name Outlets agent established age Hong Importers 7-Eleven Hong Kong Over 900 1981 15-35 Kong Agents Hong Importers Circle K Hong Kong Over 400 1985 15-35 Kong Agents

 There are over 1,300 convenience stores in Hong Kong. Two major chains dominate the market: 7-Eleven (over 900 outlets) and Circle K (over 400 outlets). They are targeting the customer age group of 15-35. Convenience stores are characterized by round-the-clock operation. Since only a limited choice of brand names is available and prices are generally less competitive, most purchases are “convenience” in nature, i.e. goods are normally bought in small quantities for immediate consumption. Good sales items include packaged drinks, beer and snack food. The average size of a convenience store is 1,000 sq. ft. Listing fees are also required for convenience stores.

Market Entry Approach

 Convenience stores largely buy goods from local importers and agents. Therefore, U.S. food exporters have to go through Hong Kong importers to have their products sold in convenience stores.

Traditional Markets

 Traditional markets include wet markets and mom-and-pop shops. They are widespread throughout the territory. Traditional markets used to account for the lion’s share of food retail. For example, they occupied around 54% of total retail food sales between 1995 and 1997. Yet supermarkets sales have exceeded traditional markets sales since 1998, and the dominating trend of the former is likely to persist and deepen in the future. Despite the growing significance of supermarkets in terms of food retailing, traditional markets remain key food retail outlets, particularly for seafood, meat and groceries. Wet markets in Hong Kong have changed gradually over the years. The newly built markets are built and managed by the Hong Kong government with air-conditioning and a more hygienic and pleasant environment than the old ones. Some, but not all, stalls in wet markets have freezers and chilling equipment, which is necessary to maintain food quality. Page 12 of 24

 Mom-and-pop shops around housing estates and schools are ideal retail outlets for drinks and snack foods. Such traditional markets offer small stalls and personal services that many Hong Kong consumers enjoy.

 “Kai Bo” is a growing local supermarket chains which started business in early 1990s. Kai Bo now has 84 stores. A typical store has a floor area ranging around 1,500 sq. feet. Their stores sell mainly processed foods and produce. Most of the food supplies in these shops come from China and South East Asia. They also import snack foods and drinks from Europe. “Kai Bo” featured more on frozen products. However, only a few U.S. foods are on their shelves as these stores feature cheap prices and are after the mass market.

Market Entry Approach

 U.S. food exporters must go through local importers or agents that have good distribution networks.

Trends in Promotional/Marketing Strategies and Tactics

 Supermarkets expanding store size: The supermarket industry is undergoing a face-lift to introduce larger size stores with an objective to provide one-stop shopping and convenience for customers. In addition to traditional grocery and household products, supermarkets are moving towards larger, more modern stores with more fresh food.

 Increasing demand for promotion packages and discounts: Hong Kong consumers are very price sensitive. Marketing tactics such as selling larger economy packs or enclosing complimentary samples are usually used to stimulate sales. The most direct and effective marketing tool is to offer discounts.

 In face of strong competition, major supermarket stores often offer discounts and tend to transfer the cost to suppliers by requesting lower prices for supplies. Given supermarkets’ strong bargaining power as they have many retail outlets, many suppliers have to give supermarkets special discounts which ordinary retailers do not enjoy.

 Consumers becoming increasingly health-conscious and organic products picking up in popularity: There has been a gradual shift in what food consumers want in Hong Kong. The importance of meat, especially red meat, has declined among some consumers, while other food groups, such as fruits and vegetables, are gaining in popularity. Consumers increasingly look for freshness, healthiness, new varieties and shorter meal-preparation time for food. Consumers want foods of higher nutritional value, but also increasingly pay attention to food safety and hygiene. In short, the marketing trend is to position food products as healthy, natural, nutritional, etc.

 Internet direct sales of food: Major supermarkets like ParknShop and Wellcome offer grocery shopping over their websites. The service is however not attracting a lot of interest, due to the convenience of shopping in Hong Kong, security concerns over payment via the internet and the cost of delivery.

 ATO Hong Kong organizes in-store promotions with major supermarkets to increase

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awareness of the high quality and variety of U.S. food products among them and their customers. Buyers from Hong Kong supermarkets realize the quick-changing consumption temperament of local consumers, and many have expressed the need to source new products from the U.S. to capture changing tastes. With strong support from exporters and state regional trading groups, the ATO continues its efforts to promote U.S. products and help supermarkets expand their range of U.S. products.

 To promote U.S. food products, ATO participates in major trade shows in Hong Kong. U.S. exporters may wish to consider participating in these trade shows so as to introduce their products to Hong Kong buyers as well as buyers from other countries in the region.

Table 8 – Hong Kong: Trade Shows Featuring Food & Agricultural Products

Date Name of Show Website May 7-10, 2013 HOFEX* http://www.hofex.com

Aug 15-19, 2013 HKTDC Food Expo http://www.hktdc.com/fair/hkfoodexpo-en/HKTDC-Food-Expo.html Sep 3-5, 2013 Restaurant and Bar http://www.restaurantandbarhk.com Sep 3-5, 2013 Asian Seafood Exposition http://www.asianseafoodexpo.com Sep 3-5, 2013 Frozen Food Asia http://www.frozenfoodasia.com Sep 4-6, 2013 Asia Fruit Logistica* http://www.asiafruitlogistica.com/en Nov 7-9, 2013 Hong Kong Int’l Wine & Spirits Fair http://hkwinefair.hktdc.com Dec 5-7, 2013 Agri-Pro Expo Asia http://www.verticalexpo.com/eeditor/index.php?expo_id=8# (* USDA-endorsed trade show, more information on USDA-endorsed trade shows can be found at: http://www.fas.usda.gov/agx/trade_events/usda_shows.asp)

SECTION III. COMPETITION

Note: Trade Statistics for 2012; Market Share in terms of Gross Import Value Source: Global Trade Atlas – Hong Kong Census & Statistics Department

Table 9 – Major Product Categories of Hong Kong’s Imports of COAP and Seafood Products And Competition

Product Category Major Strengths of Key Supply Advantages and Supply Countries Disadvantages of Local Sources Suppliers Red Meats, 1. Brazil – Products from Brazil and China Local production is largely chilled/frozen 35% are price competitive, but they on freshly slaughtered are of different market segments meats. Imports 2. U.S. – from U.S. products. US$3 billion 15%

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1,033,120 MT U.S. market share dropped from 3. China – 21% in 2003 to 3% in 2005 as a Retained Imports 9% result of the ban on U.S. bone-in US$2.2 billion beef. Market share of U.S. beef 511,203 MT 4. Germany gradually picked up following – 8% Hong Kong’s opening to U.S. beef since the beginning of 2006. Hong Kong re-opened its market for U.S. bone-in beef in February 2013.

U.S. beef is highly regarded in Hong Kong. It is always the top choice for high-end restaurants and sophisticated consumers. U.S. beef is largely for the high- end market. Red Meats, 1. China – Chinese supplies dominate the Local production is Prepared/preserved 30% market because there is a big insignificant. demand for price competitive Imports 2. U.S. – prepared/preserved meatballs US$873 million 16% and other products typical in 346,872 MT Chinese dishes in Chinese 3. Spain – restaurants and processing in Retained Imports 9% China is cost effective. US$791 million 289,2320 MT Poultry Meat 1. Brazil – Brazil took over as the leading Local production is on (Fresh, chilled & 36% supplier of poultry for Hong freshly slaughtered frozen) Kong market in 2004, when meats. 2. U.S. – Hong Kong banned entry of U.S. Imports 29% poultry products (between HRI sector tends to use US$1.42 billion February 11, 2004 and April 30, chilled and frozen chicken 931,847 MT 3. China – 2004) due to outbreaks of Avian products rather than 17% Influenza cases in the U.S. freshly slaughtered Retained Imports Though the ban was then lifted, chickens because the US$777 million Brazil continued to be the latter are far more 333,010 MT largest competitor due to price expensive. competitiveness of its products and established business relationship between Brazilian exporters and Hong Kong importers. Dairy Products 1. Netherlands is strong in dairy Local companies supply Netherlands product supplies and it has fresh milk drinks, which Imports – 44% established position in Hong are processed in Hong US$1.25 billion Kong. Kong with milk originated 233,608 MT 2. New from farmlands in the Zealand – Dairy products from major southern part of China. 11% supplying countries primarily

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Retained Imports include concentrated dairy and Local companies can US$1.11 billion 3. Ireland – cream. easily fulfill local milk 213,795 MT 9% registration requirements. Melamine was found in eggs and 4. U.S. – dairy products from China and 1% that has led consumers to pay more attention to food safety and seek high quality products from other supplying countries. Eggs 1. China – Eggs from China are price Local production is 52% competitive. However, since insignificant. Imports 2006, when some Chinese eggs US$180 million 2. U.S. – were found tainted with Sudan 2.2 billion eggs 24% red (which is a dye for industrial use), Hong Kong consumers Retained Imports 3. Thailand lost confidence in the safety of US$177 million – 8% all Chinese eggs. 2 billion eggs U.S. dominates the white egg markets.

Melamine was found in eggs and dairy products from China and that has led consumers to pay more attention to food safety and seek high quality products from other supplying countries. Fresh Fruit 1. U.S. – U.S. fresh fruits are highly No local production. 25% regarded as having good quality. Imports US$1.76 billion 2. Chile – Chile’s biggest fruit item to Hong 1,584,148 MT 19% Kong is grapes. The supplying season is different from the U.S. Retained Imports 3. Thailand US$847 million – 18% Thai Trade commission in Hong 623,188 MT Kong aggressively sponsors trade promotion activities. Thai’s tropical fruits are very popular in Hong Kong. Fresh Vegetables 1. China – Products from China are very Local production is about 78% price competitive. Due to 5 % of total demand. Imports expensive operation costs in Production costs, both in US$349 million 2. U.S. – Hong Kong, some farmers in terms of land and labor, 823,002 MT 7% Hong Kong move their in Hong Kong are high. operations to China and sell The Hong Kong Retained Imports 3. Australia their products back to Hong Government has US$345 million – 3% Kong. encouraged organic 820,705 MT farming so as to find the High-end restaurants and five- niche market for local

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star hotels prefer to use high vegetables. quality U.S. products. Processed Fruit & 1. China – Supplies from China are price Local production is Vegetables 29% competitive. Besides, some insignificant. international brands have Imports 2. U.S. – operations in China and their US$465 million 28% exports to Hong Kong are 227,475 MT considered as imports from 3. Thailand China. Retained Imports – 7% US$345 million 171,343 MT Tree Nuts 1. U.S. – The U.S. is very strong in No local production 73% supplying almonds, walnuts, Imports hazelnuts and pistachios. US$1.69 billion 2. Iran – 360,768 MT 16% Some of the imports are re- exported to Vietnam and China Retained Imports 3. S. Africa for processing. US$771 million – 4% 72,096 MT Wine 1. France – France is the major supplier for Hong Kong has 56% wine. French wine is highly insignificant wine Imports regarded in Hong Kong though production. US$978 million 2. U.K. – expensive. 47.6 million liters 12% Hong Kong people are becoming Retained Imports 3. Australia more familiar with California US$763 million – 7% wine. 30.4 million liters 4. U.S. – The Hong Kong Government 6% abolished the tax on wine in February 2008. The new policy has attracted more wine imports into Hong Kong.

SECTION IV. BEST CONSUMER ORIENTED PRODUCT PROSPECTS

Notes : 1 95% of Hong Kong food supplies are imported. Since Hong Kong’s domestic production is nominal the market size in the following table is equal to retained imports without taking into account local production. U.S. exports to Hong Kong are also based on imports minus exports.

2 Import tariff rates for all food and beverage products in the tables are zero except for spirits with alcohol content greater than 30%, which is 100%.

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3 Products listed below are either enjoying a large market import value or a significant growth rate for the last 5 years (2008-2012).

Table 10 – Hong Kong: Top 10 Prospects

Product 2012 2012 2008 – Key Constraints Over Market Category Retained Retained 2012 Market Development Attractiveness Imports Imports Average For USA (MT) (US$ Annual million) Retained Import Growth Fish & 204,779 US$2.6 +3% Major suppliers of fish U.S. fish and Seafood MT billion (volume) and seafood products are seafood products Products China (24%), Japan are perceived as +10% (14%), high quality and (value) Australia (7%) and the safe. US (6%). Many 5-star hotels in Hong Kong are carrying Alaska seafood products such as king salmon, king crab, snow crab, black cod and halibut. It is anticipated that these seafood products will continue to be popular among HRI sector in Hong Kong. Fresh Fruit 623,188 MT US$847 +4% Hong Kong consumers U.S. fresh fruit are million (volume) prefer fresh fruit to well known for their frozen fruit. Competition large variety, good +9% from Thailand and China quality and tastes. (value) is keen as these countries supply tropical U.S. was the largest fresh fruit at competitive supplier (25%) of prices. The shorter fresh fruit to Hong travel time for shipments Kong, followed by from these countries to Chile (19%) and Hong Kong also render Thailand (18%).

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their products “fresh” to Hong Kong consumers.

Poultry 333,010 MT US$777 +1% Brazil moved in as the Hong Kong imported Meat million (volume) no. 1 poultry exporter to US$406 million (Fresh, Hong Kong when U.S. worth of poultry chilled & poultry imports were products from the frozen) +6% temporarily banned U.S., accounting for (value) during February 11 to 29% of the market April 30, 2004 due to share. Avian Influenza cases in the United States. U.S. products are Though the ban was later highly regarded in lifted, Brazil continued to food quality and be the largest competitor food safety. due to price More popular U.S. competitiveness of its chicken products products and established include chicken wing business relationship mid joints and between Brazilian chicken legs exporters and Hong Kong because of their importers. sizes and quality. These two products are particularly popularly among Hong Kong style cafes. Pork 318,628 MT US$1.03 +5% China and Brazil are the Hong Kong imported billion (volume) top suppliers of pork to US$86 million worth Hong Kong because their of pork from the +12% products are very price U.S., accounting for (value) competitive. 7% of the market share. There is a big demand for price competitive U.S. products are prepared/preserved highly regarded for meatballs and other quality and food products typical in safety. Chinese dishes in Chinese restaurants, which are made from pork. China enjoys the advantage of low processing cost.

Processed 171,343 US$345 +0% China is the largest U.S. processed fruit Fruit & MT million (volume) supplier (29%), closely and vegetables are Vegetables followed by the U.S. well known of their

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(28%). superior quality and +8% tastes. U.S. (value) Some international processed fruit and brands have operations vegetables such as in China and their potatoes, nuts, exports to Hong Kong are sweet corn, considered as imports mushrooms, from China. peaches and pineapples will continue to be in large demand in Hong Kong. Beef 171,969 US$820 +19% Because of BSE cases in Hong Kong MT million (volume) the U.S., Hong Kong consumers have banned U.S. beef since high regards for +25% 2005. Brazil beef took U.S. beef in terms of (value) the opportunity to gain quality and safety. market share. Market The re-opening of share of U.S. beef the Hong Kong gradually picked up market for U.S. following Hong Kong’s bone-in beef opening to U.S. beef presents good since the beginning of opportunities. 2006. Hong Kong re- opened its market for U.S. bone-in beef in February 2013. Wine 30.4 US$763 +7.8% Competition is keen in Hong Kong imported million liters million (volume) Hong Kong. Major US$63 million of competitors come from U.S. wine in 2012, +31% France and Australia. accounting for 6% (value) French wine is of the market share. traditionally more popular in Hong Kong. The HKG abolished the import tax on wine and beer in February 2008.

Hong Kong consumers are more and more receptive to wine.

The HRI sector in Macau is growing, making it an excellent opportunity for U.S. wine traders to expand their

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exports. Tree Nuts 72,096 US$771 +0% The U.S. is very strong in No local production MT million (volume) supplying almonds, hazelnuts and pistachios. +24% (value) Some of the imports are re-exported to Vietnam and China for processing. Fruit & 17,265 US$34 -6% The U.S. is still the Given the high Vegetable MT million (volume) market leader. Hong quality of U.S. fruit Juices Kong imported US$18 & vegetable juices, +3% million worth of fresh U.S. fruit and (value) fruit juices in 2012, vegetable juices accounting for a market such as orange share of 51%. juices, apple juices, grape juices, grapefruit juices, tomato juices and pineapple juices are expected to continue to be popular in 2013. Organic Statistics Statistics Statistics Organic F&B products are As Hong Kong Food and not not not generally 20-40% higher consumers are Beverage available available available in prices compared to becoming more non-organic products. health-conscious, (The size of the demand for the Hong There are many organic organic products is Kong standards in the market expected to grow in organic and the poor quality of a 2013. food and country’s organic beverage products may negatively USDA Organic market is affect the image of enjoys an excellent estimated organic products from all reputation among at US$500 supplying countries. consumers in Hong million, with Kong. Consumers an annual generally have more growth of confidence on USDA 10-15%) Organic standards than other countries’.

Grain products, soybeans, cereals, oats, noodles…etc are in good demand.

Other products such as organic meat (beef and pork),

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condiments, poultry, eggs etc are starting to have more interest in the market.

There is also a strong demand for organic vegetables and fruits, organic coffee and tea products.

SECTION V. KEY CONTACTS AND FURTHER INFORMATION

Post Contact

Foreign Agricultural Service (FAS) Home Page: http://www.fas.usda.gov

Agricultural Trade Office American Consulate General 18th Floor, St. John’s Building 33 Garden Road, Hong Kong Tel: (852) 2841-2350 Fax: (852) 2845-0943 E-Mail: [email protected] Web site: http://www.usconsulate.org.hk http://www.usfoods-hongkong.net

Department to Implement Food Safety Control Policy Food & Environmental Hygiene Department 43rd Floor, Queensway Govt Offices 66 Queensway, Hong Kong Tel: (852) 2868-0000 Fax: (852) 2834-8467 Web site: http://www.fehd.gov.hk

Department to Control the Importation of Plants & Live Animals Agriculture, Fisheries & Conservation Department 5th -8th Floors, Cheung Sha Wan Govt Offices 303, Cheung Sha Wan Rd Kowloon, Hong Kong

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Tel: (852) 2708-8885 Fax: (852) 2311-3731 Web site: http://www.afcd.gov.hk

Department to Issue License for Imported Reserved Commodities Trade & Industry Department 18th Floor, Trade Department Tower 700 Nathan Road Kowloon, Hong Kong Tel: (852) 2392-2922 Fax: (852) 2789-2491 Web site: http://www.tid.gov.hk

Department to Register Health Foods Containing Medicine Ingredients Department of Health Pharmaceuticals Registration Import & Export Control Section 18th Floor, Wu Chung House 213 Queen’s Road East, Wanchai, Hong Kong Tel: (852) 2961-8754 Fax: (852) 2834-5117 Web site: http://www.dh.gov.hk

Department to Issue License for Imported Dutiable Commodities Hong Kong Customs & Excise Department Office of Dutiable Commodities Administration 6th -9th Floors, Harbor Building 38 Pier Road, Central, Hong Kong Tel: (852) 2815-7711 Fax: (852) 2581-0218 Web site: http://www.customs.gov.hk

Department for Trade Mark Registration Intellectual Property Department Trade Marks Registry 24th and 25th Floors, Wu Chung House 213 Queen’s Road East Wan Chai, Hong Kong Tel: (852) 2803-5860 Fax: (852) 2838-6082 Web site: http://www.ipd.gov.hk

Semi-Government Organization Providing Travel Information Hong Kong Tourist Board 9th - 11th Floors, Citicorp Center,

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18 Whitfield Road, North Point, Hong Kong Tel: (852) 2807-6543 Fax: (852) 2806-0303 Home Page: http://www.hktourismboard.com

Semi-Government Organization Providing Hong Kong Trade Information Hong Kong Trade Development Council 38th Floor, Office Tower, Convention Plaza 1 Harbor Road, Wan Chai, Hong Kong Tel: (852) 2584-4188 Fax: (852) 2824-0249 Home Page: http://www.tdctrade.com

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